Edited version of private advice

Authorisation Number: 1052018674627

Date of advice: 11 August 2022

Ruling

Subject: CGT - deceased estate

Question 1

Are the Beneficiaries of the Trust presently entitled to the capital gain on the sale of the X% interest in the Property held by the Trust?

Answer

Yes. Section 97 of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a beneficiary of a Trust who is not under a legal disability, who is a resident for taxation purposes and who is presently entitled to a share of the income of a trust must include in their assessable income their share of the net income of the trust estate.

Considering the circumstances and the relevant factors we are satisfied the Beneficiaries of the Trust have present entitlement to the Trust income paid to the Beneficiaries. In this case, the income of the Trust, being the capital gain made on disposal of X% interest in the Property, has been distributed to the Beneficiaries. Therefore, the Beneficiaries will be assessable for tax on the capital gains in proportion to their interest.

Question 2

Can the capital gain on the sale of the Y% interest in the Property held by the Deceased Estate be disregarded?

Answer

Yes. At the time of death, the Deceased held a partial ownership interest for capital gains tax purposes in the Property, being a Y% interest. The Property was the deceased's main residence just before death. The Property was not being used for income producing purposes. The Property was sold with settlement occurring within two years of the Deceased's passing.

Therefore, in accordance with the application of section 118-195 of the Income Tax Assessment Act 1997, the capital gain made from the sale of Y% ownership interest of the Property can be disregarded by the trustee of the Deceased Estate.

This private ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commences on:

1 July 19XX

Relevant facts and circumstances

The Deceased passed away in 20XX.

The Deceased's Last Will and Testament named Person A, Person B and Person C as the Executors and Trustees.

Person D is the sole beneficiary of the Deceased Estate under the Will.

Grant of Probate was granted to Person A as one of the Executors in 20XX.

The Deceased purchased the Property after 20 September 1985 for $XXX,XXX of which $XX,XXX (being X% of the purchase price) was contributed by Person E and Person A at the request of the Deceased.

A Deed of Declaration of a Trust (the Deed) was made in 19XX between the Deceased together with her executors administrators as the Trustee and Person E and Person A together with each of their executors administrators as the Beneficiaries. Hereinafter known as the Property Trust.

The Deed provides:

In consideration of the contribution of the Beneficiaries the Trustee hereby declares that the Trust holds X% interest in the property as Trustee for the Beneficiaries jointly for their own use absolutely.

4. The Trustee will settle the benefit of the X% interest in the property upon the Beneficiaries immediately upon the settlement of the sale of the property or immediately upon receipt of a written demand by the Beneficiaries for the settlement of such benefit, whichever event shall occur earlier.

The beneficiaries of the Trust have not contributed to the property in any other way.

A Contract for Houses and Residential Land for the sale of the Property was entered into by Person A as Legal Personal Representative in November 20XX with settlement occurring in December 20XX.

Sale proceeds in relation to the X% interest held on trust were paid to Person E and Person A as the Beneficiaries of the Trust in 20XX.

All known assets and liabilities of the Deceased Estate have been administered with the net funds held in the Trust Account for distribution to Person D.

The Title Search shows the Property was registered solely in the Deceased's name.

The Property was the Deceased's main residence just before death and was not then being used for the purpose of producing assessable income. The Property is less than two hectares in size.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 97

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 104-55

Income Tax Assessment Act 1997 Section 106-50

Income Tax Assessment Act 1997 Section 115-10(c)

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-195

Income Tax Assessment Act 1997 Division 128

Income Tax Assessment Act 1997 Section 128-20